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Monday, September 1, 2014

When we judge the performance of chief executives, most of us
know the boss who's good at cutting costs isn't worth as much as the
boss who's also able to improve the outfit's products and processes.
Well, the same goes for treasurers and finance ministers - and their
econocrats.

It seems the fiscal managers are running low on good
ideas. But not to worry - the former Treasury and prime ministerial
adviser Dr Ric Simes, now of Deloitte Access Economics, had some useful
advice to offer in a speech to the Australian Business Economists last
week.

Simes argues governments themselves have an important role
to play in achieving the improved productivity performance the
econocrats keep saying we need. Especially when "productivity" is better
thought of as "technological progress" and the figures for
measured productivity aren't as important as actual improvements in
welfare.

"For those parts of the economy where market forces are
paramount, government's main role is to make sure that regulation or its
own actions allow competition to unfold without unwarranted
intervention," Simes says.

To me, this means econocrats should
urge their masters to tread carefully when powerful business interests,
fighting to shore up a technologically superseded business model, demand
that governments make breaches of government-granted copyright a
hanging offence.

As Simes says, digital technologies have lower
entry barriers and are forcing businesses to be both more productive and
more responsive to consumers. So don't help incumbents resist change.

But,
he says, the potential for technology to make some of the largest
improvements in Australian lives lies in government-heavy sectors
including health, education and transport. In these areas, progress has
been too gradual.

"The exemplar is probably electronic health
records, which have been the focus of considerable effort for perhaps 15
years now, but where we still seem to be a long way off the goal of
having them routinely used throughout the health system.

"Or, take
even an example where we have done well, the SCATS - Sydney
Co-ordinated Adaptive Traffic System - for control of traffic lights.
SCATS was originally developed 40 years ago, it has been constantly
refined since then and is now in use in 27 countries.

"So, a
success story - yet, as a Sydney driver, I know my welfare would be
improved with a more refined SCATS system. It's coming - NICTA [the
National Information Communications Technology Research Centre of
Excellence] and others are working on optical-based monitoring and
improved optimisation algorithms - but more support for both the
research and especially its deployment would lift my welfare!"

Simes
notes that in both cases, electronic health records and SCATS, the
strict efficiency improvements from the technology - the bit that would
help government budgets - represent a relatively small part of the
overall benefits to the community.

"Especially in health and
education, many of the benefits will involve improvements in the quality
and range of services rather than efficiency gains," he says.

"Making
the most effective use of digital technologies in health and education -
as well as other areas where government has a direct role, such as
smart technologies in transport and utilities - will deliver much larger
economic and social benefits than where we seem to like to focus much
of our policy attention, such as whether we should get the budget back
into balance by 2017 or 2019."

Another potentially major area of
micro-economic reform, Simes says, is how we organise our cities. Up to
80 per cent of Australia's output and employment occurs within its major
cities. This has happened in the pursuit of economies of agglomeration.

"Yet
we know that the problems are mounting. Congestion, compromised open
spaces, the loss of amenity all risk detracting more and more from those
benefits."

As with digital, many of the benefits from fixing
these problems would not show up in our standard measures of welfare
derived from the national accounts.

"Ten minutes less travelling
time to work, or to school, doesn't have direct effects on gross
domestic product. A more vibrant space around the harbour, or convenient
shopping centre in the 'burbs, doesn't get picked up. But social
welfare is clearly affected," he says.

Taking Sydney as an
example, if commuter travel times on its roads were reduced by five
minutes per trip, the benefits would amount to $3.6 billion a year, if
an individual's time is valued at average weekly earnings.

To this
you could add savings for freight or commercial vehicles. And savings
for going to the shops, or school, or to the beach.

Echoing the patron saint of treasurers, Simes wants to lift our gaze to "the big picture".